Pricing your product or service can sometimes be a “shot in the dark.” Too often, companies define their pricing by their development costs-and in the case of a service company, by their labor costs-and required profit margin alone. Then they find themselves discounting on every sale to meet a price the market will bear. Or worse yet, creating channel conflict.

Channel conflict occurs when a new method for selling product or services, such as the web, catalog, and partners, threatens to cannibalize one or more existing selling channels for the same products or services, such as retail, wholesale, or superstores. Fighting between channels can cause you to lose significant profit margin to smooth things over or risk being cut out by your most lucrative channel. Don’t they call this cutting off your nose to spite your face?

To avoid the possibility of channel conflict, plan ahead with your pricing strategy by:

Define All Possible Channels
Define all the possible channels you might someday sell into, regardless of the channel you choose to start selling into first. Some channel options to investigate for your product or service include: Direct Sales, Sales Agents, Web, Distributors, Retail, and Catalog. If you are a service company, consider all of the partner channels that might bundle your services with theirs.

Analyze Industry Standards
Research each channel you’ve defined and determine what the margin expectations are for each one, specific to your product or service. Every industry is a bit different, so don’t assume you can take one industry experience and apply it to another. Also evaluate your competition within each of these channels and determine the “what the market will bear” price range.

Understand Your Product/Service Costs
Understand your break-even costs. When defining this cost, you must include the cost to “deliver” your product or service in addition to the cost of goods or cost of labor. Compare these costs to the margins expected by each channel and the ultimate price the market will bear for any red flags.

Create Multi-Level Pricing
Assuming you can cover your costs and meet your profit goals with the above analysis, create a multi-level pricing model that accounts for all of your possible sales channels and the margin expectations for each, “what the market will bear” price, and your costs and desired profit margins.

Pricing for multiple channels can be very complicated and even careful planning can’t guarantee you won’t see channel conflict, but it does help! And the benefit of selling through a multi-channel approach far outweighs the risk.

Go-To-Market Strategies is a resource center for sales and marketing professionals and business leaders. Our tools, templates, and services help companies achieve big aspirations with limited budgets. More articles and resources available at http://www.gtms-inc.com

Tags: channel conflict, direct sales, profit margin, sales agents, strategies, web distributors, pricing

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